accounting treatemt for open position of equity index

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amit (Querist)
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01 May 2008 we are doing equity index arbitrage. We buy nifty futures and sold equivalent % of stock futures so our position is 99.99% hedge. Suppose we bought 1,00,000 nifty @6000 and sold equivalent stock futures at same level to take advantage of arbitrage opportunity. Now on 31st March the Nifty value comes to 4500 but we have positive mark to market as we have already sold stock futures of equvalent value. Now as Guidance note issued by ICAI we have to provide for Mark to Market loss on Nifty futures i.e.Rs.1500 lacs and should not consider gain of Rs.1510 lacs on stock futures. To me in such cases as matter of prudence on has to consider profit/loss of whole basket instead of considering each item individually. Any comment ???

Sorimuthu

Sorimuthu (Expert)
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23 September 2009 As a conservative principle, its always good not to account for any profit which is just a notional and not realised. the same thing applied to expenses as well so we need to account for a notional loss. hope this answered your question.